Following its strong gains on the back of bets that centrist Emmanuel Macron will become the next French president, the appeal of the Euro began to wane somewhat.
In the absence of fresh Eurozone data investors saw an opportunity for profit taking, with EUR exchange rates coming under renewed pressure as a result.
Confidence in the single currency has also weakened in anticipation of Thursday’s European Central Bank (ECB) monetary policy meeting.
Although no change in policy is likely at this juncture markets are wary of the ECB adopting a more dovish outlook.
With policymakers still vocally unconvinced that domestic inflation is experiencing a meaningful increase any significant discussion of policy tightening seems unlikely.
Even so, if there is any talk amongst policymakers of tapering the quantitative easing program in any capacity this could encourage a fresh bout of Euro bullishness.
Support for EUR exchange rates could also come from April’s German and Eurozone consumer price index data.
Investors anticipate that inflationary pressure has continued to pick up on the year, which could increase speculation that monetary policy will not remain loose for as long as markets currently anticipate.
However, as forecasts point towards continued softness in the monthly and core inflation figures the Euro may struggle to regain its stronger footing ahead of the weekend.
As campaigning for the UK general election intensifies the Pound has fallen out of favour somewhat, in spite of market optimism over the likely outcome.
The Euro Pound exchange rate could experience a stronger boost if the first quarter UK gross domestic product report points towards weakening growth.
GDP is forecast to have slowed from 0.7% to 0.4% on the quarter, suggesting that the domestic economy is already coming under increased pressure.
This would not bode well for the economic outlook going forward, with uncertainty over Brexit negotiations and the UK’s future relationship with the EU likely to remain a significant drag in the months to come.
If growth proves better than expected, however, Sterling could find a fresh rallying point.
Demand for the US Dollar has strengthened, meanwhile, thanks to the Trump administration’s promise of substantial tax cuts.
While there are still concerns over whether Congress will back the plans, given the significant hole the cuts could leave in the budget, this failed to shore up the Euro US Dollar exchange rate.
Even though April’s consumer confidence index fell short of forecast the underlying picture remained strong, as researchers at ANZ noted:
‘April consumer confidence dipped to 120.3, with both the present situations and expectations indices falling. The fall only partly reversed the surge in March, with the headline index still close to a 16-year high. The details point to a strong labour market with respondents saying that jobs are plentiful rather than hard to find remaining close to a 16-year high.’
Further gains could be in store for the US Dollar once the full details of the tax plan are publicised, with markets likely to welcome the proposals.
However, if Congress shows any signs of reticence over the reforms the ‘Greenback’ could fall back as Trump’s ability to deliver on his promises remains limited.
Current EUR GBP USD Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending lower around 0.85. Meanwhile, the Euro US Dollar exchange rate was slumped at 1.09.
